FILED: NEW YORK COUNTY CLERK 01/26/2018 05:47 PM INDEX NO.

655636/2017
NYSCEF DOC. NO. 117 RECEIVED NYSCEF: 01/26/2018

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

SOTHEBY’S, INC., Motion No. 002

Plaintiff, Index No. 655636/2017

-against-

NATURE MORTE LLC AND ANATOLE

SHAGALOV,

Defendants.

PLAINTIFF SOTHEBY’S REPLY MEMORANDUM OF LAW

IN FURTHER SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

Dated: 2018-January-26

CAHILL COSSU NOH & ROBINSON LLP

John R. Cahill
Paul S. Cossu
Aimée Scala
70 West 40th Street
New York, NY 10018
212-719-4400

Attorneys for Plaintiff Sotheby’s, Inc.

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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES….………….......................................................................................... ii
PRELIMINARY STATEMENT ....................................................................................................1
STATEMENT OF FACTS .............................................................................................................1
ARGUMENT ..................................................................................................................................2
I. The Undisputed Evidence Establishes Defendants’ Liability and Defendants’
Unsupported Claims of “Extended Payment Terms” are Irrelevant Since, by Their
Own Admission, Defendants Breached the Very Terms They Claim They Received .......2
A. Delay of a Decision Under C.P.L.R. 3212(f) is Only Warranted if
Defendants Can Show That Further Discovery Would Support an
Affirmative Defense and Not, as Here, Just the “Mere Hope” of a Defense ................3
B. Shagalov’s Failure to Produce Any “Course of Dealing”
Evidence Demonstrates that Such Evidence is Nonexistent .........................................3
C. Defendants’ Unsupported Claims of “Extended Payment Terms” are Irrelevant
Since Defendants Breached the Very Terms They Claimed to Have Received ...........4
D. Shagalov’s Liability as Personal Guarantor is “Strictly Construed” ............................5
II. Defendants Fail to Raise Any Triable Issue of Material
Fact as to Whether Sotheby’s Acted in Good Faith and a
Commercially Reasonable Manner When Reselling the Work ..........................................6
A. Defendants’ Unsupported Belief that a Better Resale Price Could Have
Been Obtained Does Not Render Sotheby’s Resale Commerically Unreasonable ......6
i. The Resale was Commercially Reasonable; the Price was Within
Pre-Auction Estimates Despite Defendants’ Damage to the Work’s Value .....7
ii. Defendants’ Claim of a $5 million Purchase Offer is Demonstrably False ......9
B. Defendants’ Claim to Need Further Discovery into Sotheby’s
Resale of the Work is a Meritless Stalling Tactic that Should be Denied ....................9
i. Evidence of Sotheby’s Relationships with Its Consignor, New
Purchaser and Guarantors was Disclosed or is Entirely Irrelevant ...................10
ii. Evidence of Sotheby’s Internal Valuations of the Work is Immaterial ............12
iii. Evidence of Sotheby’s Reasonable Resale Attempts was Already Disclosed ..12
C. Sotheby’s Provided Reasonably Sufficient Notice of the Resale .................................13
III. Sotheby’s Did Not Fail to Mitigate Its (and Its Consignor’s) Damages .............................14
CONCLUSION.............................................................................................................................. 16

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TABLE OF AUTHORITIES
Cases

Anchev v. 335 W. 38th St. Co-op Corp.,

29 Misc. 3d 1223(A), 2010 WL 4628030 (Sup. Ct., N.Y. Cnty Oct. 12, 2010) (Ramos, J.) ... 9, 12

Bankers Trust Co. v Dowler & Co.,

47 N.Y.2d 128 (1979) ............................................................................................................. 12, 15

Chemical Bank v. Haseotes,

No. 93 Civ. 2846 (LMM), 1994 WL 30476 (S.D.N.Y. Feb. l, 1994) ....................................... 7, 14

Christie’s, Inc. v. Davis,

247 F. Supp. 2d 414 (S.D.N.Y. 2002)............................................................................................. 7

CIT Grp./Credit Fin. v. Weinstein,

261 A.D.2d 203 (1st Dep’t 1999) ................................................................................................. 5-6

Citibank v. Plapinger,
66 N.Y.2d 90 (1985) ....................................................................................................................... 6

Companion Life Ins. Co. of N.Y. v. All State Abstract Corp.,

35 A.D.3d 519 (2nd Dep’t 2006) ..................................................................................................... 3

Davis v. Carroll,
937 F. Supp. 390 (S.D.N.Y 2013) .................................................................................................. 8

Di Sabato v. Soffes,
9 A.D.2d 297 (1st Dep’t 1959) ........................................................................................................ 4

Fed. Deposit Ins. Corp. v. Forte,

94 A.D.2d 59 (2nd Dep’t 1983) ....................................................................................................... 7

Ferolito v. Ariz. Beverages USA, LLC,

119 A.D.3d 642 (2nd Dep’t 2014) ................................................................................................. 10

Freiser v. Stop & Shop Supermarket Co., LLC,

84 A.D.3d 1307, 1308-09 (2nd Dep’t 2011) .................................................................................... 5

Holy Properties Ltd., L.P. v. Kenneth Cole Prods., Inc.,

87 N.Y.2d 130 (1995) ................................................................................................................... 14

Hyman v. Golio,
134 A.D.3d 992 (2nd Dep’t 2015) ................................................................................................... 6

ii

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Kershaw v. Hosp. for Special Surgery,

114 A.D.3d 75 (1st Dep’t 2013) ...................................................................................................... 2

Namad v. Salomon Inc.,

74 N.Y.2d 751 (1989) ..................................................................................................................... 4

Paco Corp. v. Vigliarola,

611 F. Supp. 923 (E.D.N.Y. 1985) ............................................................................................... 13

SNCB Corp. Fin. Ltd. v. Schuster,

877 F. Supp. 820 (S.D.N.Y. 1994), aff’d, 71 F.3d 406 (2d Cir. 1995) ......................................... 14

Sterling Nat’l Bank v. Biaggi,

47 A.D.3d 436 (1st Dep’t 2008) ...................................................................................................... 6

Sumner v. Extebank,
88 A.D.2d 887 (1st Dep’t 1982), aff’d as modified, 58 N.Y.2d 1087 (1983) .................................. 7

Van Damme v. Gelber,

111 A.D.3d 408 (1st Dep’t 2013) .................................................................................................... 5

Westchester Med. Center v. N.Y. Cent. Mut. Fire Ins. Co.,

2010, 30 Misc.3d 497 (Sup. Ct. Nassau Cty. 2010)........................................................................ 3

Rules & Statutes

N.Y. C.P.L.R. 3212 ..................................................................................................................... 1, 3

N.Y. U.C.C. § 2-706 ................................................................................................................... 6, 9

Other Authorities

Alan Beggs & Kathryn Graddy, Failure to Meet the Reserve Price: The Impact on Returns to
Art, U. OXFORD DISCUSSION PAPER SERIES, July 2006;
available at https://www.economics.ox.ac.uk/ materials/working_papers/paper272.pdf .............. 8

iii

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PRELIMINARY STATEMENT
Defendants1 have no valid defenses—none—to Sotheby’ claims against them. There are

no material facts in dispute, and none of the feigned factual issues that Defendants claim are in

dispute would require a trial of this action. All of Defendants’ arguments in opposition to

summary judgment are meritless, and are based on the singular goal of forestalling a judgment

against Defendants for as long as possible. For instance:

• Whether Sotheby’s provided Shagalov extended payment terms of up to 90 days from the
Auction is immaterial—in either factual scenario, Defendants still breached their
payment obligations because, as is undisputed, Defendants failed to make any payment
to Sotheby’s within 90 days of the Auction;
• Sotheby’s acted in good faith and in a commercially reasonable manner after default:
i) the only “evidence” that Defendants offer to support their claim that they could have
sold the Work for a little more was fabricated at the direction of Defendants after this
lawsuit had been brought by Sotheby’s;
ii) the resale price was within both the original Auction estimates and market expectations
for the Work, even after Defendants’ own aggressive bidding is discounted (only one
other bidder placed a bid in excess of $4 million), as well as their damage to the Work’s
value caused by “shopping” it around after the Auction in an attempt to raise the money
necessary to pay Sotheby’s;
iii) Shagalov’s claims that Sotheby’s acted in bad faith by somehow “preventing” him from
securing financing or a third-party buyer are meritless—the only thing “preventing”
Shagalov from obtaining financing or a third-party purchaser was his own
unwillingness to take a “loss” on the Work;
iv) the notice Sotheby’s provided was legally sufficient under New York’s Uniform
Commercial Code (“N.Y. U.C.C.”);
• Further disclosure is unwarranted and a waste of time and judicial resources; Sotheby’s
has shown facts sufficient to unquestionably establish Defendants’ liability and there is
no evidence tending to show facts essential to oppose Sotheby’s motion such that
C.P.L.R. 3212(f) would apply.

STATEMENT OF FACTS
The relevant facts are set forth in Sotheby’s Rule 19-a Statement. To the extent

Defendants assert any new facts in their opposition, those facts are addressed infra.
1
Except where otherwise noted, this Reply Memorandum of Law adopts the defined terms set forth in Sotheby’s
Commercial Division Rule 19-a Statement (the “Rule 19-a Statement”) (NYSCEF No. 52).

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ARGUMENT
I. The Undisputed Evidence Establishes Defendants’ Liability, and Defendants’
Unsupported Claims of “Extended Payment Terms” are Irrelevant Since, by Their
Own Admission, Defendants Breached the Very Terms They Claim They Received
Sotheby’s has demonstrated that it has a right to judgment as a matter of law based on the

ample documentary evidence submitted in support of this motion. That evidence conclusively

demonstrates Defendants’ liability and, crucially, Defendants’ opposition papers do not provide

any legitimate defense from the legal consequences of their breach. The facts that support

Sotheby’s motion for summary judgment are simple and undisputed:

(i) Nature Morte was the high bidder on the Work during the Sotheby’s 2017-May-
18 Auction (see Defendant’s Response to Plaintiff’s Rule 19-a Statement (the
“Rule 19-a Response”)2 ¶ 12);
(ii) Shagalov signed the Personal Guarantee, obligating himself personally to the
purchase (see id. ¶ 7);
(iii) Sotheby’s filed this lawsuit on 2017-August-31, more than 90 days after the
Auction (see id. ¶ 22);
(iv) Defendants utterly failed to perform their contractual obligations by neglecting to
make a single payment to Sotheby’s for the Work (see id. ¶ 32 (“Admit that
defendants did not make any payment for the Work…”)); and
(v) Defendants never denied their obligation to pay—to the contrary, they
acknowledged their payment obligations in writing. (See Sotheby’s Counter-
Response to Defendants’ Rule 19-a Response (the “Rule 19-a Counter-
Response”), submitted concurrently, Exhibit K.)

Even when the evidence is viewed in the light most favorable to Defendants, there is still

no basis to deny Sotheby’s motion; such evidence raises no defense, colorable or otherwise, nor

even the likelihood that such essential facts exist.

2
Sotheby’s is unable to provide an NYSCEF No. for any of Defendants’ opposition papers other than the
Memorandum of Law in Opposition to Plaintiff’s Motion for Partial Summary Judgment (“Defs. Br.”) because of
Defendants’ improper failure to file those papers with the Court in violation of the Commercial Division’s and this
Court’s mandatory e-filing rules, and in disregard of the Protective Order which provides a clear procedure for the e-
filing of documents that contain “confidential” or “attorneys’ eyes only” information. Defendants’ opposition should
also be rejected for their failure to serve any of their opposition papers before the Court-ordered deadline of 11:59
p.m. on 2018-January-10. (See Affirmation of John R. Cahill, dated 2018-January-26 (“Cahill Aff.”) ¶ 7.) See also
Kershaw v. Hosp. for Special Surgery, 114 A.D.3d 75, 77 (1st Dep’t 2013) (denying cross motion for summary
judgment regardless of merits because submission was untimely and no good cause for delay was presented).

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A. Delay of a Decision Under C.P.L.R. 3212(f) is Only Warranted if

Defendants Can Show That Further Discovery Would Support an
Affirmative Defense and Not, as Here, Just the “Mere Hope” of a Defense
Defendants fail to make the requisite showing that delay is warranted in accordance with

C.P.L.R. 3212(f). In Companion Life Ins. Co. of N.Y., the court noted:

In order to provide a basis pursuant to CPLR 3212(f) for

postponing a decision, a party must show more than a mere hope
that it might be able to uncover some evidence during the
discovery process…the party must [also] show that its ignorance
was unavoidable and that reasonable attempts were made to
discover the facts which would give rise to a triable issue of fact.

Companion Life Ins. Co. of N.Y. v. All State Abstract Corp., 35 A.D.3d 519, 521 (2nd Dep’t 2006)

(citations omitted); see also Westchester Med. Center v. N.Y. Cent. Mut. Fire Ins. Co., 30 Misc.

3d 497, 499 (Sup. Ct. Nassau Cty. 2010) (“A party who raises a defense that has not yet been

fully developed, but appears to exist, must be able to make some showing that such facts do in

fact exist for CPLR 3212 (f) to apply”) (emphasis added).

As set forth below, there is no basis for delay. Even assuming Defendants’ sole defense

to liability—namely, that Defendants’ received extended payment terms from Sotheby’s (see

Defs. Br. at 11-14)—could be supported through depositions or further fact discovery,

Defendants admittedly breached the very extended payment terms that they assert existed and

into which they claim they need more discovery.

B. Shagalov’s Failure to Produce Any “Course of Dealing”

Evidence Demonstrates that Such Evidence is Nonexistent
Shagalov claims that he has “bought a number of pieces from Sotheby’s over the years,

and Sotheby’s had always been amenable to working with Shagalov regarding the terms and

timing of payment.” (See Defs. Br. at 4; Affidavit of Anatole Shagalov (“Shagalov Aff.”) ¶ 3.) In

keeping with this “course of dealing,” he claims that it was understood that he often did not have

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financing in place prior to purchase. With respect to his purchase of the Work, he claims

“Sotheby’s expressly agreed to their usual extended payment terms…” (Defs. Br. at 12.)

This argument conveniently ignores the fact that Defendants are already in possession of

any documentation of Sotheby’s “prior transactions and course of dealing with Shagalov.” (Id. at

13.) Thus, if Defendants had any evidence that would actually raise a material fact in opposition

to Sotheby’s summary judgment motion (e.g., a document showing that Defendants were always

permitted extended payment terms on their purchases), they would already have produced it,

rather than simply obfuscating by claiming that such evidence should be disclosed before

summary judgment can be entered in Sotheby’s favor. Shagalov’s clear access to such “course of

dealing” evidence coupled with his conspicuous failure to disclose it, indicates Defendants’

claimed “course of conduct” defense is implausible at best, and certainly not evidence of “the

existence of a genuine defense.” Di Sabato v. Soffes, 9 A.D.2d 297, 297 (1st Dep’t 1959).

C. Defendants’ Unsupported Claims of “Extended Payment Terms” are Irrelevant

Since Defendants Breached the Very Terms They Claimed to Have Received
In his Affidavit, Shagalov describes the details of what he contends he understood the

alleged 30-60-90 payment terms (the “Alleged Payment Terms”) to be: “[Sotheby’s] wanted

some payment within 30 days and complete payment within 90 days.” (Shagalov Aff. ¶ 5.) Even

assuming, arguendo, that Shagalov’s understanding was correct, Defendants do not dispute that

they failed to timely pay any part of the purchase price pursuant to either the Conditions of Sale

or to the Alleged Payment Terms. (Rule 19-a Counter-Response ¶ 32.)

Shagalov is also “in the business of buying and selling works of fine art.” (Defs. Br. at 4.)

As such, he cannot defeat summary judgment simply by claiming the parties’ understanding did

not comport with the written contractual evidence. Namad v. Salomon Inc., 74 N.Y.2d 751, 753

(1989) (where written agreement between sophisticated, counseled businesspersons is

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unambiguous, summary judgment cannot be defeated by a party’s conclusory assertion that the

writing did not express such person’s understanding of agreement reached during negotiations).

Despite having substantial evidence concerning the parties’ post-Auction

communications, Defendants cannot point to one instance where Shagalov references his right to

the Alleged Payment Terms; he never raised the issue before the lawsuit, although it is in his

Answer as an affirmative defense. Van Damme v. Gelber, 111 A.D.3d 408, 409 (1st Dep’t 2013)

(“feigned factual issues…[are] insufficient to defeat the summary judgment motion.”); cf.

Freiser v. Stop & Shop Supermarket Co., LLC, 84 A.D.3d 1307, 1308-09 (2nd Dep’t 2011)

(granting summary judgment when “plaintiff, in an affidavit submitted in opposition…[included]

details and observations that were different from her deposition testimony…[which] constituted

an attempt to create a feigned issue of fact…”) (citations omitted).

Documentation of the Alleged Payment Terms should exist. By contrast:

• Documents produced by a third-party in response to a subpoena from Defendants
establishes that a written agreement in advance with Sotheby’s was necessary in order to
receive extended payment terms (see Cahill Aff. Exhibit 1); and
• The Sotheby’s executive from whom Defendants sought permission to bid on the Work
“shouted NO!!!” when asked shortly after the Auction if Defendants had received
extended payment terms, which was confirmed by other Sotheby’s employees). (Rule 19-
a Counter-Response Exhibit C.)
The absence of any corresponding documentation concerning Defendants (all such

documentation was produced), conclusively establishes that Defendants did not receive extended

payment terms and that they have no defense to liability.

D. Shagalov’s Liability as Personal Guarantor is “Strictly Construed”

Even if Nature Morte could raise a material issue of fact that would preclude summary

judgment (which it cannot and has not), Shagalov’s Personal Guarantee expressly waives “any

affirmative defenses, setoffs and counterclaims.” (Id., Exhibit E at 1.) It is black letter New York

law that Shagalov’s liability as guarantor is “strictly construed.” CIT Grp./Credit Fin. v.

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Weinstein, 261 A.D.2d 203, 204 (1st Dep’t 1999). Such waiver is binding and enforceable where

the contractual “language is sufficiently specific to constitute a valid waiver of the right to plead

defenses.” Sterling Nat’l Bank v. Biaggi, 47 A.D.3d 436, 436-7 (1st Dep’t 2008) (citing Citibank

v. Plapinger, 66 N.Y.2d 90 (1985)). In such instances, “the subject guaranty effectively provides

that, even if the principal is able to escape liability, the guarantee is still enforceable.” Hyman v.

Golio, 134 A.D.3d 992, 993 (2nd Dep’t 2015). Thus, Shagalov’s personal liability is clear and, for

the same reasons, he remains liable for the difference between the resale price and the contract

price under N.Y. U.C.C. § 2-706(1).

II. Defendants Fail to Raise Any Triable Issue of Fact as to Whether Sotheby’s Acted
in Good Faith and in a Commercially Reasonable Manner When Reselling the Work
Having established Defendants’ liability to Sotheby’s, the only issue left to address is

whether Sotheby’s is immediately entitled to a judgment in the amount of $2,137,500 (exclusive

of interest and other costs), which represents the amount due and owing by Defendants after

Sotheby’s resold the Work following Defendants’ default on payment, before an inquest is

scheduled to determine any additional damages (i.e., attorneys’ fees, expenses incurred reselling

the Work, etc.). Once again, Defendants have failed (1) to submit any evidence that would raise a

triable issue of fact as to whether Sotheby’s resale of the Work was not in good faith and

commercially reasonable under New York’s Uniform Commercial Code, or (2) to show how

further discovery could lead to evidence that would raise a triable issue of fact on that issue.

A. Defendants’ Unsupported Belief that a Better Resale Price Could Have

Been Obtained Does Not Render Sotheby’s Resale Commercially Unreasonable
Defendants’ opposition (see Defs. Br. at 14-18) to the entry of a judgment on the

difference between “the resale price and the contract price” under N.Y. U.C.C. § 2-706(1) is

based on a fundamental misunderstanding of New York law. It is well-established that a resale is

not commercially unreasonable simply because a seller could have theoretically achieved a better

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price in another circumstance. Christie’s, Inc. v. Davis, 247 F. Supp. 2d 414, 423 (S.D.N.Y.

2002) (“the fact that Christie’s could in theory procure higher prices for some of the works by

using private sales (if true) does not render a sale by auction commercially unreasonable.”); Fed.

Deposit Ins. Corp. v. Forte, 94 A.D.2d 59 (2nd Dep’t 1983) (fact that better price could have been

obtained by sale at different time or method not sufficient to establish sale not commercially

reasonable); Sumner v. Extebank, 88 A.D.2d 887, 888 (1st Dep’t 1982), aff’d as modified, 58

N.Y.2d 1087 (1983) (sale commercially reasonable as matter of law despite fact that seller could

“have been more accommodating in that they could have held up the sale and allowed a third

party time to see if he could finance the transaction”); Chemical Bank v. Haseotes, No. 93 Civ.

2846 (LMM), 1994 WL 30476, at *4 (S.D.N.Y. Feb. l, 1994) (failure to receive optimum price

does not make sale commercially unreasonable).

i. The Resale was Commercially Reasonable; the Price was Within Pre-
Auction Estimates Despite Defendants’ Damage to the Work’s Value
Defendants attempts to blame Sotheby’s for the circumstances in which they now find

themselves are meritless. Sotheby’s and its Consignor are the victims here. Sotheby’s relied to its

detriment on Defendants’ false representations concerning their ability to pay for the Work,

delaying resale. Once it became clear that Defendants would not make payment for the Work,

Sotheby’s filed suit on 2017-August-31 and, shortly thereafter, began investigating a potential

resale for the highest amount achievable. (See Rule 19-a Counter-Response Exhibits Q, R, S, T.)

On 2017-October-03 it sent Shagalov notice of its intention to resell the Work. (Id., Exhibit P.)

Defendants repeatedly try to characterize the resale price as “substantially lower” than the

purchase price. (See, e.g., Defs. Br. at 3 (“[Sotheby’s planned to resell the Work for around two

thirds of the purchase price it was demanding from Nature Morte…”); Affidavit of Charles

Rosoff, (the “Rosoff Aff.”) ¶ 5(a) (“Sotheby’s has not disclosed how [it] … arrived at a purchase

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price of $4.4 million—only a fraction of the price Mr. Shagalov agreed.”).)3 Such

characterizations are misleading—they utterly fail to acknowledge the simple fact that Shagalov

engaged in a “bidding war” with the only other bidder above $4 million. (Cahill Aff. Exhibit 3.)

When that underbidder advised Sotheby’s that it was “not interested” after the Auction (Rule 19-

a Counter-Response Exhibit Q) there no longer existed a market for the Work above $4.4 million.

There is also no question that Shagalov’s failure to pay for the Work which forced

Sotheby’s to resell it also affected its value; the art market is more complex than that for other

valuable commodities. A work of fine art that is put up for auction and not sold can be “burned”

and suffer a potentially significant decline in value for at least several years.4 A work that was

“knocked-down” (i.e., successfully bid upon but not actually purchased, such that it must be sold

again) can arouse similar suspicion and result in a similar devaluation in the eyes of the market.

Shagalov conveniently ignores that he was also intimately involved in shopping the Work

around. (Shagalov Aff. ¶ 8.) Shagalov’s indiscriminate attempts to sell the Work (or trade it’s

title in exchange for a loan) also impacted its resale value. If anything, Shagalov’s own conduct

after the Auction and his desperate attempts to secure financing or a purchaser for the Work

“burned” it, such that the price Sotheby’s eventually obtained was clearly commercially

reasonable under the circumstances. 5

3
Even if Shagalov’s inclusion of previously undisclosed “expert” testimony was proper, which it was not, the Court
should disregard it. The Rosoff Affidavit is an impermissible attempt to include expert opinion without making an
appropriate showing. See Davis v. Carroll, 937 F. Supp. 390, 417 (S.D.N.Y. 2013) (striking expert evidence
because, among other things, expert “failed to link his personal knowledge and experience to the issue in a non-
speculative and non-conjectural manner.”).
4
See Alan Beggs & Kathryn Graddy, Failure to Meet the Reserve Price: The Impact on Returns to Art, U. OXFORD
DISCUSSION PAPER SERIES, July 2006, at 2-4 (available at https://www.economics.ox.ac.uk/
materials/working_papers/paper272.pdf).
5
In one instance, it is undisputed that Shagalov himself was apparently in financing negotiations with another
underbidder. (Rule 19-a Counter-Response ¶ 31.) Without an appreciation for irony, Defendants now assert that
Sotheby’s subsequent communications with that same underbidder were inappropriate. (See Rossof Aff. ¶5(j) (“I
am informed that there is evidence that [the underbidder] may have burned the piece”).)

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Shagalov’s reliance on Anchev to claim that Sotheby’s did not “undertake sufficient or

reasonable efforts to obtain the best and highest price for the Work” (Rule 19-a Response at 8) is

misplaced. In Anchev, unlike here, there was a “wide discrepancy between the proffered value

and the actual purchase price,” because the condo unit was valued at $1 million and sold for

$193,000, “which invit[ed] further scrutiny.” Anchev v. 335 W. 38th St. Co-op Corp., 29 Misc. 3d

1223(A), 2010 WL 4628030, at *5 (Sup. Ct., N.Y. Cnty. Oct. 12, 2010) (Ramos, J.). Defendants’

reliance on Fed. Deposit Ins. Corp. v. Herald Sq. Fabrics Corp., 81 A.D.2d 168, 185-186 (2d

Dep’t 1981) is similarly misplaced. In that case, “the disposal price of the collateral was

approximately 10% of its original sale price.” Id. at 185. Here, the resale price was within the

Work’s pre-Auction estimates, and was the highest price offered for it after significant inquiry.

ii. Defendants’ Claim of a $5 Million Purchase Offer is Demonstrably False

Sotheby’s respectfully refers the Court to its separate motion to strike and for sanctions

(Motion No. 005) for a full discussion of Defendants’ claimed $5 million offer. For purposes of

this summary judgment motion, it suffices to say that, (1) no such offer ever existed, (2)

Defendants fabricated the sole document that they claim supports the offer through an unwitting

third-party who had no idea of Defendants’ wrongdoing, and (3) Defendants attempted to

withhold the evidence that the document was backdated to October 25th at Shagalov’s request.

(See Affidavit of Melissa Bargaballo, dated 2018-January-23 (“Bargaballo Aff.”), ¶¶ 12-17.)

B. Defendants’ Claim to Need Further Discovery into Sotheby’s

Resale of the Work is a Meritless Stalling Tactic that Should be Denied
Lacking any admissible evidence that Sotheby’s resale of the Work did not comport with

N.Y. U.C.C. § 2-706(1), Defendants once again feign the need for further discovery. The

disclosure that Defendants purport to seek, i.e., (i) “significant evidence regarding [Sotheby’s]

prior transactions and course of dealing with Shagalov” (see supra, II.B); (ii) evidence

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“regarding its relationships with the consignor, new purchaser, and guarantors [sic];” (iii)

disclosure of Sotheby’s own valuation of the Work; and (iv) a deposition witness “to explain its

understandings and purportedly reasonable efforts with respect to the Work,” is either irrelevant

to liability, or is already in Defendants’ possession. (Defs. Br. at 13.)

i. Evidence of Sotheby’s Relationships with Its Consignor, New

Purchaser and Guarantors was Disclosed or is Entirely Irrelevant
Information regarding Sotheby’s relationships and agreements with its other clients is

confidential, constitutes Sotheby’s trade secrets and is unrelated to the issues raised here.

Defendants, as art dealers, are in competition with Sotheby’s and as such, absent an

extraordinary showing, disclosure of such confidential information is not warranted. See, e.g.,

Ferolito v. Ariz. Beverages USA, LLC, 119 A.D.3d 642, 643–4 (2nd Dep’t 2014) (“a party

seeking disclosure of trade secrets must show that such information is indispensable to the

ascertainment of truth and cannot be acquired in any other way.”) (citations omitted).

Notwithstanding that Defendants have made no such showing, it is agreed that Sotheby’s already

produced the consignment agreement into which it entered concerning the Work. (See Affidavit

of Mathew E. Hoffman (“Hoffman Aff.”), Ex. B.) It is similarly acknowledged that Sotheby’s

already produced the agreement concerning an advance bid on the Work. (Id., Ex. A.)6

The facts relating to the “the consignor, new purchaser, and guarantors” are clear:
• The Consignor of the Work consigned it to Sotheby’s for sale at public auction. (Id., Ex.
B.) The Consignor requested, and received, a guarantee from Sotheby’s that it would
receive at least a minimum amount from the sale of the Work. (Id.)

6
Defendants’ efforts to try to create a material issue of fact on the damages amount by asserting that Sotheby’s has
to “account for its net savings” (Defs. Br. at 15) is unfounded. Sotheby’s ongoing obligations to its Consignor and
the Guarantor, as well as its lost commission damages, are not the subject of this action and can only be fully
addressed by Sotheby’s when it recovers damages from Defendants. Even if, for purposes of argument, it is accepted
that “$468,750…must be subtracted from [Sotheby’s] claims” (Hoffman Aff. ¶ 2), Sotheby’s would still be entitled
to an immediate judgment in the amount of $1,668,750, with an inquest to follow on remaining damages.

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• Sotheby’s reached an agreement with a third-party in which that third-party (the

“Guarantor”) agreed to place an irrevocable bid for the Work of less than $4,000,000.
(Id., Ex. A.)
• The Guarantor was one of four parties (including Nature Morte) that bid on the Work at
the Auction. (Id., Ex. A; see also Rule 19-a Counter-Response Exhibits Q, R, S, T
(unredacted copies of which have been previously produced to Defendants).)
• Following Nature Morte’s (and Shagalov’s) default on their payment obligations,
Sotheby’s offered the Work to all parties (including the underbidders) who had expressed
interest in Work at a price point in excess of $4 million. (Id.)
• The only party to express a continuing interest in acquiring the Work for an amount
within the presale estimates that Sotheby’s had placed on the Work ($4 million to $6
million) was the Guarantor. (See id., Exhibit V.)
• After the expiration of the deadline in the Notice of Resale served on Defendants,
Sotheby’s sold the Work for $4.4 million to the Guarantor. (See id. ¶¶ 27-28.)
The unsupported speculation and inappropriate innuendo proffered by Defendants, such

as “Sotheby’s could have held the Work for its next auction” (Defs. Br. at 16) or “Defendants

submit that Sotheby’s knew that the Work would likely bring the best price at auction, but chose

a private sale for purposes of its own expediency” (id.), are irrelevant. The only remaining

question before this Court is not whether Sotheby’s achieved the highest resale price possible

(which could involve Sotheby’s holding onto the Work for another decade) but, rather, whether,

under the circumstances, the resale of the Work was commercially reasonable.

Discovery has been ongoing in this dispute for months, and Defendants have had ample

time to seek discovery (and did so in other instances).7 To the extent Defendants belatedly argue

that they have been denied discovery, such argument is demonstrably false: Sotheby’s objections

to Defendants’ document requests, which Defendants attach in support of their claims, were

made on 2017-November-16. Defendants have had over two months, but have not sought a

7
For example, in response to Sotheby’s objections concerning the identities of the “underbidders” on the Work,
Defendants sought additional information and obtained it. It is, therefore, entirely clear that Defendants are not
raising these newly purported discovery issues out of any genuine need for information material to their defenses,
but rather as a way to temporarily stave off summary judgment against them.

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conference or moved to compel. Further, as they concede, they have not deposed a single

Sotheby’s witness despite being offered the chance to do so (Hoffman Aff. ¶ 20), preferring

instead to complain about the need for discovery, rather than actually engage in it. Accordingly,

any such objections should be deemed waived.

ii. Evidence of Sotheby’s Internal Valuations of the Work is Immaterial

There is already ample evidence concerning the Work’s value in the record. In addition to

Sotheby’s presale estimate (Rule 19-a Counter-Response Exhibit V), the Auction records present

significant evidence concerning the Work’s market value. (Id., Exhibit H.) In particular, at the

Auction (which was heavily advertised and broadly attended), there were only two bidders who

bid higher than $4 million; one of those bidders was Shagalov himself. (See Cahill Aff. Exhibit 3,

evidencing that the highest bid without Defendants would have been $4.2 million.) Sotheby’s

also approached a key collector with demonstrated interest in the Work. (Rule 19-a Counter-

Response Exhibit S.) Only one would pay more than $4 million. See Bankers Trust Co. v. Dowler

& Co., 47 N.Y.2d, 128, 134 (1979) (“When the sale is conducted so as to give a sufficiently

broad group of buyers the opportunity to bid, their failure to respond in any particular number

may itself be an indication of the market value of the item offered for sale.”).

The resale price Sotheby’s secured was commensurate with the market’s documented

appetite for the Work. Because there is no “wide discrepancy” between the market price and the

resale price which “invites further scrutiny,” further disclosure of Sotheby’s internal

communications regarding the Work’s value is irrelevant. See Anchev, 2010 WL 4628030 at *5.

iii. Evidence of Sotheby’s Reasonable Resale Attempts was Already Disclosed

Despite being repeatedly and improperly characterized as “conclusory assertions” (see,

e.g., Defs. Br. at 18), Sotheby’s has already produced the written internal communications

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concerning Sotheby’s attempts to resell the Work. (Rule 19-a Counter-Response Exhibits Q, R, S,

T.) Sotheby’s has also produced communications that reflect the terms that were negotiated in

connection with the resale that ultimately occurred on or about 2017-October-13, and Sotheby’s

commercially reasonable conduct with respect to these matters. (Cahill Aff. ¶ 6.)

Even if Defendants obtained all of the additional disclosure that they seek, it still would

not alter Defendants’ liability—Defendants have utterly failed to rebut Sotheby’s prima facie

showing that it is entitled to summary judgment. Despite Defendants’ empty protestations, no

amount of additional discovery would enable them to overcome this prima facie showing

because each document, text and email exchange demonstrates that Shagalov: (i) alerted

Sotheby’s to the fact that Nature Morte intended to bid for the Work, (ii) personally guaranteed

all of Nature Morte’s purchases, (iii) affirmed the fact that he purchased the Work and that he

owed Sotheby’s the purchase price, and (iv) failed to make even a single good faith payment

towards his purchase. The only conclusion that can be drawn from these facts is that Defendants

breached and therefore summary judgment is proper.

C. Sotheby’s Provided Reasonable and Legally Sufficient Notice of the Resale

Shagalov had constructive notice of the likelihood of a resale in the event of a breach, as

such a possibility is explicitly contemplated in the Conditions of Sale. (Rule 19-a Counter-

Response ¶ 9.) Shagalov also received notice of Sotheby’s intention to resell the Work on 2017-

October-03. (Id., ¶ 24; Exhibit P.) Shagalov’s opposition papers cite no legal authority to support

his claim that 10 days’ notice is commercially unreasonable. Instead, “[t]o be considered

reasonable, notice should reach the obligor ‘in time to give him several business days in which to

arrange alternative financing.’” Paco Corp. v. Vigliarola, 611 F. Supp. 923, 925 (E.D.N.Y.

1985).

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Shagalov emphasizes that he first learned of Sotheby’s plan to resell the Work for a lower

price on 2017-October-10. (Defs. Br. at 6.) Noticeably absent is any legal support for the

proposition that Sotheby’s had an obligation to notify him of the terms of the resale. SNCB Corp.

Fin. Ltd. v. Schuster, 877 F. Supp. 820, 828 (S.D.N.Y. 1994), aff’d, 71 F.3d 406 (2d Cir. 1995)

(“A secured party need not inform the debtor…of the progress of a private sale: ‘reasonable

notification’ does not relieve the debtor of all responsibility to act to defend its self-interest.”).

III. Sotheby’s Did Not Fail to Mitigate Its (and Its Consignor’s) Damages
Defendants contend that Sotheby’s failed to mitigate damages because it rejected

Shagalov’s efforts concerning the alleged (fabricated) $5 million transaction, opting instead to

resell the Work for $4.4 million. (Defs. Br. at 19.) Defendants then cite Holy Properties Ltd.,

L.P. v. Kenneth Cole Prods., Inc., 87 N.Y.2d 130, 133 (1995) for the black-letter principle that

“[t]he law imposes upon a party subjected to injury from breach of contract, the duty of making

reasonable exertions to minimize the injury.”). Accommodating another of Shagalov’s 11th hour

attempts to delay Sotheby’s from exercising its rights, however, was in no way a “reasonable

exertion” under the circumstances. Instead, it was a significant risk, in that Sotheby’s could

potentially have lost the opportunity to sell the Work for $4.4 million. Finally, whether

Defendants have a mitigation of damages defense is irrelevant to a liability determination. Chem.

Bank v. Haseotes, 1994 WL 30476, at *3 (“Defendants’ claim that the sales…were commercially

unreasonable does not bar summary judgment…but only concerns the calculation of damages.”).

Defendants claim the “Sotheby’s rejected the 10 percent down payment which was part

of a schedule to fund the balance allegedly due.” (Rule 19-a Counter-Response ¶ 19 (emphasis

added).) This patent falsehood is made plain by the record. Despite Shagalov’s apparent

promises (made the week Sotheby’s planned to bring this action) to Sotheby’s representative

Gail Skelly that 10% down was part of a financing schedule, when Skelly inquired from

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Shagalov’s financier directly in order to “gain some confidence” (id., Exhibit L), he candidly

responded:

I wanted to confirm that AOI is working on a financing transaction

with Anatole Shagalov that, if consummated, should generate
enough net proceeds to Mr. Shagalov to cover a 10% payment
against his obligation to Sotheby’s. While we are hoping to close
the transaction this week, we cannot at this time make any formal
commitment that such a timeline will be achieved or that the
transaction will close at all. (Cahill Aff. Exhibit 5.)
There is absolutely no evidence (apart from Shagalov’s own self-serving and conclusory

Affidavit) to support Defendants’ contention that Shagalov had an actual financing schedule in

place or that, months after the Auction, he had any hope of raising more than 10% of the

purchase price.8 Defendants’ financing never materialized through no fault of Sotheby’s. That

Skelly took the time to communicate with Krecke directly at all (particularly given that the only

money put on the table for Sotheby’s would have been a few hundred thousand dollars) is

evidence that Sotheby’s was acting in good faith, extending Defendants further reasonable

opportunities prior to exercising its resale right, even after Defendants’ breach.9 (See also Cahill

Aff. Exhibit 4 (“…payment is now overdue. We need money, not letters.”).)

8
The disingenuous nature of this claim by Defendants, and the Affidavit submitted by Christopher Krecke (who is
represented by Defendants’ counsel), is difficult to understate. Defendants, to induce Sotheby’s to forestall on
bringing a lawsuit, represented and promised to Sotheby’s that the “understanding with Chris [Krecke] is that once
this initial payment is made he will immediately schedule to fund the balance due.” (Rule 19-a Statement Exhibit
L.) (Emphasis added.) Nothing could be further from the truth, as AOI and Mr. Krecke could not even commit to a
timeline for making a payment to Sotheby’s of a few hundred thousand dollars, to say nothing of the 90% balance.
9
Shagalov also contends the resale was commercially unreasonable because Sotheby’s generally hindered his ability
to arrange financing or a third-party buyer. His “expert” notes in this regard that, “had he known he could sell the
piece at a lower price he could have obtained a buyer or financier promptly.” (Rosoff Aff. at ¶ 5(f); see also
Shagalov Aff. ¶ 16.) Not only is this statement purely speculative, but Shagalov’s own documents show that this is
exactly what he had been doing, without success, since practically the day he bid on the Work. (Rule 19-a Counter-
Response ¶ 32.) Further, Sotheby’s did not contract with Shagalov to eventually find a buyer for the Work under
terms that would create an “upside”—Sotheby’s contracted with Shagalov to purchase the Work for the purchase
price—a purchase price that Shagalov himself was instrumental in creating as the high bidder. Sotheby’s did not
agree to provide Shagalov with a broad and indefinite platform to arrange financing, and declining to renegotiate
with Shagalov was not commercially unreasonable or in bad faith. Sotheby’s was not “an investor or coentrepeneur;
it had the right to define and limit the risks it would accept.” Bankers Trust Co., 47 N.Y.2d at 134.

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CONCLUSION

For the reasons set forth above, it is respectfully submitted that the Court grant Sotheby’s

the relief requested in its motion.

Dated: New York, New York

2018-January-26

CAHILL COSSU NOH & ROBINSON LLP

By: /s/ John R. Cahill

John R. Cahill
Paul Cossu
Aimée Scala
70 West 40th Street
New York, New York 10018
212-719-4400

Attorneys for Plaintiff

Sotheby’s, Inc.

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